Generally, anything of value provided to an employee by an employer is considered taxable and reportable compensation, whether it is in the form of wages or salary, tangible property, or services. A general exception to this rule is the de minimis fringe benefit, which is exempt from employee taxable income under the Internal Revenue Code provided it meets the standard of being so "minimal" that calculating its value to an individual employee would be unreasonable or impractical.
Benefits in general can be a compliance headache for employers, given the hide-and-seek tax code approach of classifying everything as taxable unless you can find the place in the code or regulations that says something isn't. De minimis fringes offer particular challenges because of the subjectivity of their definition. What, for example, is ''nominal'' fair market value for a given benefit? And what exactly does ''administratively impracticable'' mean?
This issue of Workforce Strategies provides practical guidance for employers in determining what is (and what is not) a de minimis fringe benefit for employment tax purposes and in avoiding potential pitfalls in accounting for the benefits. The appendix presents a case study in IRS's fact-specific approach to determining the actual status of a benefit defined by an employer as de minimis and how subjective (or fluid) that judgment can be.